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June 13, 2018The bittersweet cost of Madagascar's vanilla boom

On a recent Saturday afternoon in Sahabevava village, on the east coast of Madagascar, 46-year-old vanilla farmer Lydia Soa brandished the latest in anti-theft tracking devices: a hand-carved wooden stamp studded with a series of small steel pins. She had recently gone through the vines of her small plantation, stamping thousands of green vanilla pods with her unique producer code MK021. In theory, thieves could still steal her crop, but her branded pods would reveal their perfidy at the local market. "Now I can sleep at night, and when I wake up, my vanilla will still be there," she says, with a relieved grin.

These days, vanilla theft is a big business in Madagascar. That may seem like a distant problem, but its repercussions are likely to be felt at your favorite dessert parlor this summer. Climate change, crime and speculation mean the price of the fragrant spice has skyrocketed from $20 a kilo five years ago to $515 in June. Ice-cream makers are faced with the agonizing choice of raising prices, pulling vanilla ice cream from the shelves, or even---to the horror of many---replacing real vanilla with a synthetic version sourced from petroleum products.

An innovative new program, spearheaded by some of the world's biggest vanilla buyers, is tackling the problem head on by reducing theft, educating farmers, and making crops more resilient to the ravages of climate change. The aim is to stabilize the price of vanilla so that farmers will keep growing, and companies will keep buying.

Evolutionarily speaking, vanilla should have died out long ago. Now farmed far from its native Mexico and the bees that evolved to fertilize it, vanilla orchids have to be pollinated by hand in a time-consuming process---the small white flowers bloom once a year, for one day only. Then it takes another nine months for the fruits to mature into pods, which then have to be cured for several more weeks in alternating baths of steam, sun and shade before they can be incorporated into your favorite vanilla ice cream.

A byword for boring, vanilla tends to be taken for granted. Yet without it cookies lose their zing, milk chocolate its fragrance, crème brûlée its flare and Calvin Klein's Obsession its sweet, earthy base. And without vanilla, some 80,000 farmers in Madagascar, which supplies 80% of the world's crop, would lose their livelihood.

In a stark warning of climate change to come, a pair of tropical cyclones wiped out much of 2017's Madagascan crop, sending prices higher than $600 a kilo. But higher costs don't necessarily benefit the small family farmers whose futures depend on the fickle fruit. At a dollar per bean in one of the poorest countries of the world, farmers have had to contend with vanilla thieves who snatch the just-before-ripe pods straight from the vines knowing that they will fetch a decent price even if green. To counter the theft, farmers harvest their own crops early, flooding the market with low quality beans that lack the intense flavor that only emerges just before the mid-July harvest. As a result, the quality plummets and so does the price. Farmers tear out their vines in frustration, then scarcity pushes the price up again, creating a vicious cycle of vanilla boom and bust.

In terms of cost, vanilla is easily the most volatile spice on the planet, says Gilbert Ghostine, CEO of Firmenich, a Swiss fragrance and flavor house that buys around 300 tons of vanilla a year---more than a tenth of the global supply. That volatility is putting vanilla's very future at risk. "When the price is at $20, you have lots of farmers who say, 'I'm not making money out of this. I'm walking away.' And when it's at $600, you have lots of companies saying, 'I don't want to use natural vanilla anymore because I can't make money.'" The last time the price of vanilla spiked, to $400 a kilo in 2003, nearly 30% of buyers turned to vanilla substitutes and synthetic flavoring, says Dominique Roques, Firmenich's vice president for natural flavors. The market for real vanilla eventually recovered, but continued fluctuations are making food companies wary. It's not easy to reformulate recipes, and changing labels is expensive.

All but the most die-hard vanilla ice cream aficionados would have a hard time telling the difference between real vanilla and artificial flavoring, at least until they turn the container around and start reading the ingredients. That just may be the lifeline for Madagascar's farmers. Consumers are increasingly demanding natural products in their food, says Roques, and 'vanillic aldehyde' doesn't necessarily sit well with someone about to pay eight dollars for a pint of vanilla caramel swirl.

Which is why French food purveyor Danone, French utilities company Veolia, Firmenich and Mars Inc. are investing $10 million into the Livelihoods Fund for Family Farming, an mpact investment fund that will, among other things, stabilize a crop that most people don't even think about. It's part of an emerging trend among food companies to streamline their supply chain, knowing the importance of being able to tell consumers that the ingredients in their products are not only natural and pronounceable, but also that no humans were harmed in the process of procuring them.

"It is absolutely critical that our supply chains are sustainable," says Victoria B. Mars, a member of the Board of Directors for Mars, Inc., and a fourth generation member of the Mars family. "If we don't have the raw materials, we can't make our products. If our farmers are not able to make a decent living, we won't have the raw materials we need."

In Madagascar, the Livelihoods Fund has partnered with local NGO Fanamby on a $2 million project to provide farmers with vanilla seedlings and teach them sustainable practices that avoid the carbon-producing, erosion-inducing slash and burn methods of traditional agriculture. At the same time they are dealing with the theft problem by helping farmers organize neighborhood vanilla watch programs and supplying them with the coded stamps. When there is a theft, Fanamby now goes to the authorities to press a complaint so that farmers in remote areas don't have to leave their crops in the middle of harvest season.

Meanwhile, the three food and flavor companies have signed a contract agreeing to buy the vanilla directly from the 1,000 or so farmers in the cooperative, rather than through the middlemen who can take up to a 60% cut for themselves. In return, the farmers have committed to sell only to the investors for the next 10 years, at a 2-4% premium over market price.

It isn't just about corporate social responsibility, says Ghostine, though that does play a part. It's self-preservation. As the world's second largest flavors and fragrance company, Firmenich supplies vanilla extracts to leading brands, such as Guerlain (Madagascan vanilla is the cornerstone of its Shalimar perfume) and Häagen-Dazs. Though Firmenich also supplies synthetic and natural vanillin flavors derived from clove, cinnamon and wood, real vanilla is a luxury that needs to be preserved at the source, says Ghostine. "We are making sure that the crops are harvested properly. We are increasing the yield. We are ensuring that communities still have a passion for investing in these crops and that their children are not going to the cities just to find jobs."

Vanilla isn't the only product that is getting the Livelihoods treatment. The fund is looking at other crops too, from cocoa to coconut, rice, palm oil and shea butter. Each of those commodities has a complex and, at times, sinister supply chain that could benefit from greater transparency and streamlining, revolutionizing the industry in the process, says Livelihoods Ventures president and co-founder Bernard Giraud. Vanilla, he says, is the Mount Everest of commodities. "If we can do it with vanilla, we can do it with anything."

New vanilla vines take three years to mature, so it will be a while yet before the Livelihoods program, now in its second year, bears fruit. In the meantime, Soa is plotting ever more dire punishments for anyone who does attempt to steal her current crop. At the moment vanilla thieves face 3-4 years in prison. As far as she is concerned, that's not enough. She wants a life sentence. "You invest all your life in growing the vanilla. Stealing it is the same thing as killing someone."